1. The PIU Energy Policy Review was set
up in 2001 to consider the design of energy policy with particular
regard to the environmental constraints detailed in the Royal
Commission on Environmental Pollution (RCEP) report on climate
change, and the problems of gas dependency and the prospect of
significant imports.

2. If significant reductions of CO2
are to be achieved in the coming decades then most of the existing
power stations will need to be replaced and much of the electricity
and gas networks radically re-engineered. The closure of most
of the nuclear capacity over the next two decades will add to
these investment requirements.

3. It is practically inconceivable that
such a transition could be achieved on the basis of "cheap"
energy, as the Prime Minister's Foreword to the report indicates
is a priority. The PIU report reinforces the low-price option,
by suggesting that the UK should only cut emissions if others
contribute too. The UK, it states, should create "a range
of future options by which low carbon futures could be delivered,
as, and when, the time comes". In the meantime, the implication
is that the RCEP recommendations should be set aside in favour
of a more or less "business as usual" approach. The
PIU recognises the trade-off, but does not spell out the overriding
importance of the government stating clearly what its environmental
objectives are, and what the implications for customers' bills
will be. It is the task of government to tell the public that
cheap energy and a sustainable climate are not compatible objectives.

4. In attempting to address the environmental
concerns, the PIU report does not provide a coherent framework
for future energy policy. There are four main weaknesses: the
report fails to address the core problems of long-term contracts
(for gas, renewables and nuclear); it does not give sufficient
attention to network investment (for gas and for embedded electricity
generation); it does not give a coherent lead on the interaction
of the numerous individual environmental interventions; and it
fails to adequately address the institutional agenda.

5. Taking each in turn, first, almost all
environmentally benign energy technologies require long-term contracts
to finance investment. New technologies need bankable contracts
to cover their development. Liberalised energy markets do not
easily support such contracts: it is for this reason that the
Renewables Obligation takes the form of a compulsory long-term
contract which suppliers must enter into. (It is a problem shared
with long-term take-or-pay gas contracting.) The PIU report does
not even discuss ``long-term contracts''.

6. Second, with the exception of nuclear
power, environmentally benign technologies are small-scale and
tend to be embedded within the distribution networks. It is unlikely
that a transition from a highly centralised grid based upon large
coal and nuclear stations to a distributive one will be achieved
without some element of planning. There will also need to be significant
changes to the gas network so that small-scale peaking plants
can help to balance the electricity system. The PIU review provides
no route-map as to how this might be achieved, nor indeed any
serious recognition of the scale of the re-engineering of the
networks required.

7. Third, an important component of energy
policy is the provision of a transparent, predictable regulatory
framework, with the costs proportionate to the benefits. In environmental
matters, there is a plethora of overlapping policies and interventions
which have been developed in an ad hoc fashion. Thus, we have
measures to both adjust energy prices to take account of environmental
effects (the Climate Change Levy), as well as to fix the quantity
of pollution (the Emissions Trading Scheme). One of these is a
tax, the other a subsidy. We also have technology-specific quality
controls (Renewables Obligation) and technology subsidies (spending
of some of the Climate Change Levy revenues and other targeted
subsidies). There are also energy efficiency measures, plant-based
pollution regulation and information campaigns. The PIU report
recognises some of the problems this complexity creates, but does
not provide any guidance to reform.

8. Finally, the PIU's proposal for a Sustainable
Energy Policy Unit does not meet the need to address the institutional
framework in a way which integrates the environmental agenda with
the traditional DTI one; which provides a core technical competence
and expertise for the shaping of future energy policy; and which
repositions the ways in which government policy translates into
changes within the energy sector. The Sustainable Energy Policy
Unit is likely to be an annex to the DTI Energy Directorate, possibly
eventually being absorbed within it. The long-running competition
between the DTI and the various guises of the environment department
(DOE, DETR and the new DEFRA) is likely to continue, creating
dissonance rather than joined-up regulation. A self-standing energy
agency, with an explicit environmental remit, would provide a
more stable and powerful body to advance the objectives of a sustainable
energy policy.